William T. Barker - Possible Regulatory Structure for Nonadmitted Practice - Center for Professional Responsibility

TO: ABA Commission on Multijurisdictional Practice

FROM: William T. Barker

RE: Possible Regulatory Structure for Nonadmitted Practice

This Commission’s Interim Report envisions a Model Rule granting out-of-state lawyers a set of safe harbors for temporary practice in the enacting state and a supplemental general principle permitting temporary practice "if the lawyer’s services do not create an unreasonable risk to the interests of the lawyer’s client, the public, or the courts." The principal alternative proposal appears to be the so-called "Common Sense Proposal" offered jointly by the American Corporate Counsel Association, the Association of Professional Responsibility Lawyers, and the National Organization of Bar Counsel, allowing temporary practice by out-of-state lawyers except as specifically limited by the authorizing rule. I would prefer the latter proposal or, if the former approach is adopted, would prefer a broader set of safe harbors. But my primary purpose here is not to advocate directly on that point. Rather, I seek to address a perceived obstacle to allowing broader practice by out-of-state lawyers.

Either proposal contemplates temporary local practice by nonadmitted out-of-state lawyers. Some of the impetus for limiting any such authorization is based on the fact that any such practice would be regulated only by discipline for any violations of the Rules of Professional Conduct plus liability for any malpractice. While many consider those forms of regulation adequate for the protection of the public, some do not. I offer a concept for an additional regulatory mechanism that could assuage some of the concerns of the latter group. This could support a version of the Common Sense Proposal incorporating the additional regulatory mechanism. Or it could support a broader set of safe harbors.

As both proposals recognize, some form of nonadmitted practice is a practical necessity for transactional lawyers (other than in-house organizational counsel) called upon to assist in matters which have aspects involving jurisdictions where they are not admitted generally. They typically must respond quickly, leaving no time for even an expedited temporary admission process, and there is no ready equivalent to the pro hac vice admission that serves most litigation needs. Even a registration process would be quite burdensome and would often hamper prompt response to client needs.

I suggest that a regulatory mechanism could be based on after-the-fact reporting on the lawyer’s temporary practice, allowing reasonably timely review of such issues as whether the lawyer has actually established a regular practice in the jurisdiction that ought to require general admission. I began developing a proposal along these lines in response to the Preliminary Report of the California Supreme Court Advisory Task Force on Multijurisdictional Practice. Other commitments prevented me from completing that proposal before the Task Force had filed its Final Report and Recommendations. But this Commission may find elements of the proposal useful.

Because the Task Force, like this Commission, was focusing on safe harbors, the aspects of my proposal dealing with the scope of permissible nonadmitted practice also took that approach. If this Commission continues to prefer that approach, it may wish to consider the broader safe harbors suggested here. Or it could combine the Common Sense Proposal (or some other proposal) with the regulatory mechanism suggested here.

Because I began developing this proposal for the California Task Force, it took the form of an amended version of the relevant California statute. Because the substance of the proposal is readily understandable in that form, I have retained it here. Obviously, some repackaging would be necessary to convert this into the form of ABA model rules or statutes. For the moment, I leave such repackaging to the Commission and its Reporter, should any of this find favor with the Commission. Many aspects of the proposal are themselves repackaging of material already contained in the Interim Report.

  1. Proposed Statutory Language
  2. Specifically, I would have suggested to the Task Force that Section 6125 of the Business & Professions Code be amended along the following lines (new language in italics):

    (a) Except as provided in this Section or in any rule of the Supreme Court regarding foreign legal consultants, [n]o person shall practice law in California unless the person is an active member of the State Bar.

    (b) An eligible out-of-state lawyer may render legal services for a client informed of the lawyer’s lack of active membership in the State Bar while in California temporarily on a particular matter if those services are:

    (1) permitted by statute, court rule or order of court in connection with pending or contemplated proceedings before a tribunal, administrative agency, or other body or person that may engage in dispute resolution;

    (2) rendered in connection with pending or possible proceedings before any federal court or agency before which the lawyer is entitled to practice or reasonably expects to be admitted to practice once the proceedings are filed;

    (3) provided solely to a client or clients who neither reside nor have a principal place of business in California;

    (4) reasonably related to or arise out of a matter or matters that the lawyer is handling or has handled for the same client or an affiliate or family member of that client outside California;

    (5) undertaken in association with an active member of the State Bar who actively participates in the representation;

    (6) provided to a client or clients who are active members of the State Bar or have been represented or advised by an active member of the State Bar in engaging the out-of-state lawyer for the particular matter;

    (7) concern a matter or matters governed primarily by federal law, international law, the law of a foreign nation, or the law of a jurisdiction in which the out-of-state lawyer is admitted to practice.

    (8) services that a person who is not a lawyer may perform in California without a governmental license or other authorization from a state or local governmental body.

    (c) An eligible out-of-state lawyer may render other legal services temporarily while in California if that lawyer can clearly establish that rendition of those services does not create a significant risk to the lawyer’s clients, the courts, or the public. One factor that may be considered in determining this issue is general recognition within the bar or within a relevant community (including a business community) that the lawyer possesses special competence in matters of the sort for which such services are rendered.

    (d) An out-of-state lawyer is a person not an active member of the State Bar but who is a member in good standing of the bar of any state, territory, or insular possession of the United States or of the District of Columbia. For the purposes of legal services regarding matters primarily governed by international law or the law of a foreign nation, an out-of-state lawyer may be a registered foreign legal consultant under the law of any state, territory, or insular possession of the United States or of the District of Columbia or may be a lawyer entitled to practice in a foreign nation having a substantial connection to the particular matter. An out-of-state lawyer is eligible to render services pursuant to this Section if that lawyer (1) lawfully practices primarily from an office or offices outside California, (2) is not resident in and does not practice other than on a temporary basis with respect to particular matters permitted by this section from an office in California, (3) either resides outside California or resides in California but practices no more than temporarily in this state, in ways permitted by this section, and (4) has not been barred from practice in California.

    (e) (1) An out-of-state lawyer’s presence in California is not temporary, even if the lawyer is otherwise eligible, if the lawyer’s practice in California for California clients is so frequent or extensive that the lawyer is engaging in regular practice in California for California clients. In assessing whether a lawyer is so engaged, a court or the State Bar may consider (1) the fraction of the lawyer’s professional activities involving practice in California for California clients, (2) the degree to which multiple matters are related to one another or involve the same clients, so that there are advantages to the client(s) in having those matters handled by the same lawyer, (3) the number of different California clients represented, especially in unrelated matters, (4) the nature and extent of any related marketing activities by the lawyer or the lawyer’s firm directed at nonlawyers in California and promoting use by such nonlawyers of the services of out-of-state lawyers.

    (2) An out-of-state lawyer lawfully practicing in California on one matter is not thereby authorized to solicit employment by California clients whom the lawyer does not already represent, but consultation with such clients or prospective clients may be independently permissible if otherwise authorized by this section.

    (f) (1) The State Bar may require out-of-state lawyers practicing in California to file periodic reports concerning the frequency and duration of their practice in California, the number of different matters involving practice in California, and the bases on which such practice is said to be permissible under this section. Such reports may not be required more frequently than quarterly, and the obligation to file and the frequency of filing may be dependent on standards of frequency and duration established by the State Bar or upon the lawyer’s history of discipline or sanctions by other jurisdictions. Any lawyer required to make such a report shall include in it a statement regarding any discipline or sanctions imposed on that lawyer (ever, if this is a first report, or since any prior report filed by that lawyer) and regarding the commencement or status of any pending disciplinary or sanctions proceeding based upon a finding of probable cause to believe that the lawyer has violated applicable rules of professional conduct. Lawyers required to make such reports may be required to pay a fee, not exceeding $____, to partially defray the costs of regulating practice by out-of-state lawyers.

    (2) If the State Bar concludes that an out-of state lawyer is engaged in practice in California for California clients without being eligible to do so under this section or that an eligible out-of-state lawyer is engaged in regular practice in California for California clients without being an active member of the State Bar, it may issue a notice to that lawyer requiring the lawyer to cease and desist from such regular practice. If the lawyer thereafter practices in California for California clients and the notice has not been withdrawn or set aside, the lawyer’s practice on behalf of such clients in violation of that notice shall be presumed to be in violation of this section.

    (3) A lawyer who has been disciplined in California is barred from practicing in California as an out-of-state lawyer except to the extent that the order imposing the discipline limits the duration of any such bar. If the State Bar concludes, after according notice and an opportunity to be heard, that an out-of-state lawyer who is practicing or has practiced in California lacks the moral character required for practice in California, it may issue an order barring that lawyer from practicing in California. On application by an out-of-state lawyer who is barred from practicing in California, the State Bar may remove the bar, completely or on reasonable conditions.

    (4) Any notice or order of the State Bar pursuant to this Section shall be reviewable by the State Bar Court under procedures established by the Supreme Court

    (g) Any out-of-state lawyer who practices in California is subject to the California Rules of Professional Conduct with respect to such practice and to the disciplinary authority of California. By practicing in California, any such lawyer appoints the Secretary of the State Bar [or other official, as deemed appropriate] as that lawyer’s agent for service of process with respect to any disciplinary proceedings or lawsuits with respect to such practice. Such a lawyer also agrees that, subject to the requirements of due process of law, any other jurisdiction in which the lawyer is admitted may conclusively accept the findings and conclusions which are the basis for any discipline imposed in California as a basis for disciplining the lawyer in such other jurisdiction unless the record of such proceeding and undisputed evidence submitted to the other jurisdiction establish that there is such infirmity of proof of the misconduct found that a court in the other jurisdiction could not, consistent with its duty, accept those findings and conclusions as conclusive. Such a lawyer waives any objection to the imposition by such other jurisdiction of equivalent discipline to that imposed by California, unless that discipline would result in injustice or would be offensive to the public policy of that jurisdiction.

  3. Analysis of the Proposal
  4. As will be explained in more detail, I believe that the safe harbors delineated in subsection (b) are both supported by a clear public interest in allowing clients to choose the counsel best able to assist with their problems and involve little or no risk to California public, clients, or courts. Subsection (c), like this Commission’s current proposal, lays down a broader principle, but places a significant burden on one who seeks to rely on it. While a lawyer’s special expertise is one basis for satisfying that burden, that expertise could not be merely self-certified. Subsection (d) limits the out-of-state lawyers who can rely on this section, in combination with subsection (e)’s prohibition on regular practice without regular admission. Subsection (f) provides a mechanism that will permit the State Bar to monitor practice by out-of-state lawyers and to limit unduly regular practice and practice by lawyers who are ethically unfit to practice in California. Subsection (g) provides for discipline of out-of-state lawyers and for rendering that discipline effective in those lawyers’ home jurisdictions.

    In allowing practice by out-of-state lawyers, clients receive considerable protection from the lawyer’s liability for malpractice. Consideration might be given to requiring such lawyers to maintain malpractice insurance as a condition of practice in California for California clients.

    1. Codifying Existing Law
    2. Three of the safe harbors in subsection (b) codify existing law on pro hac vice practice, practice before federal courts or agencies, and representation of non-California clients.

      1. Pro Hac Vice Practice
      2. Pro hac vice practice is well established and creates no problems. The proposed rule on such practice seeks to build on that model. It does not require extended discussion here. Subsection (b)(1) simply codifes the permissibility of such practice.

      3. Federal Practice
      4. California law recognizes that "statutes enacted for the purpose of regulating the practice of law in this state are applicable to our state courts only. The federal courts are governed entirely by federal enactments and . . . rules." Where an attorney moved to California and established an office for practice in the federal district court (where he was admitted), that did not involve any violation of the prohibition on unauthorized practice. On the same rationale, an Illinois bankruptcy attorney who came to California to work with the client’s California attorneys on a pending bankruptcy matter did not violate the statute. This limitation on the reach of the prohibition was reaffirmed in Birbrower. Indeed, that limitation is largely compelled by federal supremacy, which forbids states to limit practice of law that is authorized pursuant to federal law.

      5. Representation of Non-California Clients

      Existing statutory restrictions on practice in California by out-of-state lawyers apply only to representation of California clients. In Birbrower, the Supreme Court reasoned that the prohibition protects " local citizens ‘against the dangers of legal representation and advice given by persons not trained, examined and licensed for such work, whether they be layman or lawyers from other jurisdictions.’" The court stated that the controlling question in determining whether an out-of-state lawyer had improperly practiced in California was "whether the unlicensed lawyer engaged in sufficient activities in the state, or created a continuing relationship with the California client that included legal duties and obligations." The implication is that the UPL prohibition is not designed to protect and does not "protect" clients from the lawyer’s home state (which has certified the lawyer as a proper person to represent them) or clients from a third state who have deliberately chosen an out-of-state lawyer to represent them.

      This implication of Birbrower was converted into holding in Estate of Condon v. McHenry. A Colorado lawyer had represented a Colorado co-executor of a will probated in California, with the work involving some physical presence in California and extensive use of electronic media to communicate with others in California. Because the Colorado lawyer never sought admission pro hac vice in the probate proceeding, the other co-executor challenged the Colorado lawyer’s right to fees payable by the estate. Before Birbrower, the court of appeal had upheld the lawyer’s right to fees, but the case was remanded for reconsideration in light of Birbrower. The court again reached the same result. It reasoned that the Colorado co-executor had a statutory right to select his own counsel and that it was reasonable for him to use counsel convenient to his residence, especially as the firm had prepared the will under which he served. It read Birbrower to hold that the object of the statute prohibiting unauthorized practice was solely to protect California clients (individual residents and companies with their principal places of business in California). Because the Colorado co-executor was not a Californian, there was no violation of the statute when the Colorado firm entered California, "either physically or virtually," to practice law on the Colorado co-executor’s behalf. There are not many cases on in-state representation of out-of-state clients, but all of those cases are fully consistent with Condon.

      Subsection (b)(3) codifies this limitation on the prohibition of practice by out-of-state lawyers.

    3. New Safe Harbors
    4. Merely codifying existing law would accomplish little. I would have proposed a number of new safe harbors.

      1. Serving Existing Clients
      2. A California client who has utilized an out-of-state lawyer on a matter in another state and been pleased by the performance of that lawyer has a clear interest in being able to utilize that lawyer in California if the client encounters a related problem in California, either while the original matter is active or later. This enables the client to avoid the costs and difficulty of searching for and selecting another lawyer and of informing the new lawyer about the client’s affairs that the old lawyer already understands. It enables the client to rely on its established confidence in the old lawyer instead of starting over with a new lawyer who may or may not engender such confidence.

        Moreover, the very fact that the client has encountered two related legal problems in two different states places the client in a very small segment of the California public. It indicates a level of complexity of the client’s legal affairs that suggests at least some sophistication on the part of the client.

        This combination of factors clearly supports allowing California clients to use their out-of-state lawyers for related California problems. Subsection (b)(4) allows this. It also allows representation of affiliated clients and family members of existing clients. It has significant overlap with safe harbors proposed by the Ethics 2000 Commission and this Commission, though it does not precisely correspond with any of those safe harbors.

      3. Work in Association with California Counsel
      4. Subsection (b)(5) allows for out-of state lawyers to work with California counsel who actively participate in the matter. Such lawyers provide the client with significant protection against deficient representation by the out-of state lawyer, comparable to that provided by local counsel in pro hac vice representations. The desirability of such a safe harbor is widely accepted. It is among the proposals of both the Ethics 2000 Commission and this Commission, and the comments received by the Commissions indicate little or no disagreement with that proposal.

      5. Retention by or on Advice of California Lawyers
      6. The California Task Force correctly suggested that "[i]t may be possible to assess the permissible conduct of out-of-state lawyers based on their clients’ sophistication about legal matters." The difficulty with implementing this suggestion is deciding how to tell which clients are sophisticated. But I think at least one clear line can be drawn: lawyers are sophisticated in selecting and evaluating other lawyers. So, a client who is a California lawyer or who uses a California lawyer to select a lawyer for the particular matter or who makes that selection based on a California lawyer’s advice should be entitled to use an out-of-state lawyer of that client’s choice. Subsection (b)(6) allows this. In particular, this means that a client with in-house counsel authorized to practice as such (by registration or a safe harbor) would be able, with that lawyer’s advice, to hire out-of-state counsel if it deems that appropriate.

      7. Matters Where Out-of-State Lawyers Should Be Considered Equally Competent with California Lawyers
      8. One would not expect significant differences in competence among lawyers from different states in advising on matters of federal law, the law of foreign nations, or international law. Moreover, insofar as the bar examination provides some indication of minimum competence, such subjects receive little or no attention by that examination. Many areas in which these laws are dominant are somewhat arcane and have specialized bars. Given the limited assurance of competence provided by the bar examination, the expectation of similar competence by lawyers in different states, and the desirability of client access to these often specialized segments of the bar, permitting clients to utilize out-of-state lawyers on such matters seems well justified. Indeed, the California Task Force noted, as an example of what should be permitted, the example of "a specialist in an area of federal law--examples include U.S. constitutional law and federal income taxation." Similarly, a California client with a problem arising under the laws of another state ought to be able to use a lawyer admitted in that state, rather than be required to use California lawyers who provide no special assurance of competence to deal with the other state’s law. Subsection (b)(7) allows this and corresponds to a proposal of this Commission.

      9. Services that an unlicensed layperson could provide

      A safe harbor for services that an unlicensed layperson could provide is probably unnecessary. But at least one court has suggested that out-of-state lawyers are more restricted in the law-related services they can lawfully provide than are true laymen. There seems no justification for this. This Commission includes this among its proposals, and I think it a good one.

    5. A Semi-Safe Harbor
    6. One cannot readily define safe harbors that extend to all circumstances where use of an out-of-state lawyer would be desirable and would present little risk of harm to the client or the public. In particular, it is difficult to provide a general safe harbor based on the lawyer’s specialized expertise, because there are no general standards for identifying lawyers who have sufficient expertise. If lawyers can self-certify, there would be no real limits on practice by out-of-state lawyers. This Commission has suggested that, in addition to safe harbors, the law ought to provide generally that an out-of-state lawyer may render services under circumstances where doing so involves no significant risk of harm to the client, to a court, or to the public. I adopt this principle as subsection (c). I suggest that claims of expertise may be judged by whether the lawyer is recognized by others as having such expertise, thereby avoiding the dangers of self-certification.

    7. Limits on Who Can Rely on Section
    8. For most purposes, subsection (e) of this proposal permits temporary practice only by lawyers admitted in the United States. But for matters primarily governed by the law of a foreign nation or by international law, a foreign legal consultant registered in another state or a lawyer authorized to practice in a foreign nation having a substantial connection to the particular matter can also qualify. This is important not only to permit clients to use foreign lawyers specially qualified to assist with their matters, but also to support the ability of California lawyers to provide similar assistance on California law to foreign clients in their own countries.

      Temporary practice in California is only authorized in connection with lawful practice by the lawyer from an office or offices outside California and only if the lawyer is not resident in a California office. California residents generally are not eligible to practice on that basis, but a limited exception would permit a California resident admitted in and practicing from an office in a neighboring state to practice temporarily in California. (Such a resident might be subject to special scrutiny in determining whether such practice were so frequent or extensive as to constitute regular practice precluded by this proposal.) A lawyer is also ineligible if barred from practice in California pursuant to subsection (f).

      Nor may a lawyer use the authorization for temporary practice as a method for conducting a regular practice in California for California clients. In determining whether practice is so frequent or extensive as to constitute regular practice, a court or the State Bar would apply a qualitative analysis, considering factors including

      (1) the fraction of the lawyer’s professional activities involving practice in California for California clients, (2) the degree to which multiple matters are related to one another or involve the same clients, so that there are advantages to the client(s) in having those matters handled by the same lawyer, (3) the number of different California clients represented, especially in unrelated matters, (4) the nature and extent of any related marketing activities by the lawyer or the lawyer’s firm directed at nonlawyers in California and promoting use by such nonlawyers of the services of out-of-state lawyers.

      If the lawyer consistently spends a large fraction of the lawyer’s professional activities on matters in California for California clients, that would ordinarily indicate regular practice. But a single large matter or group of matters might require such a fraction without constituting regular practice. Large numbers of unrelated matters, especially for different clients, would tend to constitute regular practice, while a similar number of matters for the same client or related clients might not. Systematic marketing to nonlawyers in California tends to suggest regular practice if that marketing promotes the use of out-of-state lawyers by nonlawyer recipients of the marketing. This issue could be addressed in any of the types of proceeding now available to prevent, sanction, or remedy unauthorized practice by out-of-state lawyers. But I also propose a new mechanism for addressing such issues in proceedings before the State Bar.

      I also include a specific statement that lawful practice in California on one matter does not authorize solicitation in California of other California clients. Any dealings with a new or prospective client while in California would have to be independently justified.

    9. Regulation of Out-of-State Lawyers

I recognize legitimate concerns that unregulated nonadmitted practice in California may allow lawyers to engage in unduly frequent or extensive practice, may allow practice by lawyers who ought to be excluded, and may not assure sufficient efficacy of discipline for misconduct in California. Such concerns ought not to limit clients’ choice of out-of-state lawyers if an adequate regulatory mechanism can address them without unduly burdening those called upon to practice temporarily in California.

I agree with the California Task Force that any requirement of advance registration by outside counsel is unduly burdensome. Instead, I propose, in subsection (f), that the State Bar be authorized to require periodic after-the-fact reporting of practice in California by out-of-state lawyers. This requirement might be applied only to practice exceeding certain thresholds of frequency or duration. More frequent reporting could be required for those practicing in California more frequently or extensively. Lawyers with histories of discipline or sanctions could have greater reporting obligations, and all reporting lawyers would be required to provide information about new discipline or proceedings. Such reports would be accompanied with a modest fee. Regulation of California lawyers is funded by those lawyers, and this principle should likewise apply to out-of-state lawyers. (Such lawyers currently cause few problems, and we expect that this will continue, so the costs are likely to be primarily administrative.)

The State Bar would be authorized to inquire into whether out-of-state lawyers are practicing improperly in California and to issue cease-and-desist notices against those found to be doing so. Practice in violation of such a notice would presumptively be deemed unauthorized.

Lawyers (either members of the State Bar or out-of-state lawyers) disciplined in California would be barred from subsequent practice in California as out-of-state lawyers. (They could still practice as active members of the State Bar if they were or became such.) The order imposing discipline could limit the duration of such a bar. The State Bar could also bring proceedings to bar an out-of-state lawyer deemed deficient in moral character. A lawyer barred from practice in California could apply to have that bar removed.

The power of California to discipline out-of-state lawyers is confirmed. Disciplinary and malpractice proceedings are facilitated by providing an agent for service of process. The efficacy of California discipline is enhanced by having the lawyer agree that the lawyer’s home state(s) may ordinarily accept California’s findings and conclusions and impose equivalent discipline. Limited exceptions to those agreements are based on current provisions of Rule 22 of the ABA Model Rules for Imposition of Lawyer Discipline, but those exceptions are narrower than the current ABA Rule to provide greater assurance that California discipline will be made effective in the lawyer’s home state(s). They are similar to narrower exceptions contemplated by this Commission’s Interim Report.

In conclusion, I submit that creation of an appropriate and non-burdensome regulatory structure can satisfy legitimate concerns while permitting clients much greater freedom than existing law to use out-of-state lawyers whom those clients deem most qualified to assist them with their legal problems.